IFR 03.7.2020

International Financing Review March 7 2020 65

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Tsinghua Unigroup struggles

with A&E

„ CHINA Lenders resist request for 18-month extension as maturities loom

Technology conglomerate TSINGHUA UNIGROUP

is struggling to convince lenders to amend and

extend two offshore loans, days before one of

the facilities matures, over concerns about the

company’s high leverage.

The chip-maker, backed by one of China’s

most prestigious universities, launched the

A&E five months ago through Credit Suisse. The

borrower is seeking to extend by 18 months the

maturities on two three-year loans that were

completed in 2017.

One is a US$701m loan signed in March 2017

that matures on March 13 and the other is a

US$193m-equivalent dual-currency financing

completed in June that year.

However, several lenders are said to have

resisted consenting to the A&E because of

concerns about the company’s rising debt

burden and uncertainty over the group’s

shareholding structure. The default of PEKING

UNIVERSITY FOUNDER GROUP, another university-

backed conglomerate, has also challenged

expectations of state support for the sector.

Early last year, state-owned Tsinghua Holdings,

which owns 51% of Tsinghua Unigroup, looked to

sell a 36% stake to Shenzhen Investment Holdings,

a government investment arm in Shenzhen,

following Beijing’s call for Chinese universities to

focus more on education and less on business.

However, the planned sale was scrapped in August.

“The situation with Peking University Founder

has made us question the financial health of

such firms, and how much state support they

still enjoy,” said a banker at one of Tsinghua

Unigroup’s existing lenders.

Peking Founder was put under a court-

supervised restructuring in February after

defaulting on its debts. It failed to repay a

Rmb2bn (US$285m) onshore bond on February

21, triggering cross-defaults on US$3bn of

offshore bonds, and has recently defaulted on

Rmb370m of an entrusted loan granted by Hong

Kong-listed Founder Holdings. Under judicial

management, it is not allowed to settle individual

debts, according to stock exchange filings.

Tsinghua Unigroup’s offshore bonds plunged

in tandem with Peking Founder’s in early

December. Its US$200m 6.5% unrated bonds

due 2028 were last bid at 65.875, according to

Tradeweb.

Tsinghua Unigroup sought to reassure

investors in November that it had abundant cash

and liquidity, and had not defaulted, according

to a November 7 filing to the Shenzhen Stock

Exchange from listed unit Unisplendour.

As at June 30 2019, Tsinghua Unigroup had

around Rmb53bn in debt due within a year,

while cash and cash equivalents totalled about

Rmb39bn, according to its 2019 interim report.

Its debt-to-asset ratio rose to 73.7% from 59.1%

in 2016. For the six months ended June 30 2019,

the company reported a net loss of Rmb3.2bn,

from a net loss of Rmb631m the year before, and

a net profit of Rmb1.06bn in 2017.

The borrower for the US$701m loan in

question is UNIS TECHNOLOGY INNOVATION AND

DEVELOPMENT, while Unis Technology Strategy

Investment, a wholly owned subsidiary of

Tsinghua Unigroup, is the guarantor.

Tsinghua Unigroup has agreed to provide a

guarantee in return for the 18-month extension,

instead of a keepwell deed in the original facility,

as a credit enhancement.

Apple Li

9 IFR Loans 2323 p 63 - 76 .indd 65 06 / 03 / 2020 19 : 19 : 50